Ben Aris in St Petersburg -
Russian state-owned banking giant Sberbank is on a roll. Since it launched a drive to expand overseas, its international assets have grown 50-fold in the last three and half years to top $75bn by the end of 2013. Already by far the biggest bank in Russia, Sberbank is well on its way to becoming one of the biggest banks in Europe.
And it's making good money too. "We were making a loss when we started the expansion, however last year we made more than $900m in net profit," says Sergei Gorkov, head of Sberbank's international business, speaking to bne on the sidelines of the annual St Petersburg Economic Forum at the end of May.
While its state-controlled peer VTB was quick to move into international markets after it took over the half-dozen foreign branches of Russia's Central Bank (legacy branches left over from Communist days), Sberbank has been taking its time and really only threw itself into international expansion in about 2010; from more-or-less a standing start, the Russian retail behemoth now has operations in over 20 countries. "The strategy has been very simple. We go into markets where we enjoy a natural synergy. It can be that there are large trading volumes between the country and Russia, or there are large amounts of mutual investments," says Gorkov. "We follow our large clients and cover their typical needs."
Trade volumes led Sberbank to buy a bank in Turkey, while large investments by German companies in Russia prompted Sberbank to set up a branch in Berlin that will open in July. Sberbank has even opened a branch in India and expects to follow with a Beijing branch as part of Russia's "pivot to Asia". "We are looking at opening a China branch. It is a huge market that we need to find a niche to operate there. The Chinese banks already operating are enormous because of the huge size of the population," says Gorkov.
However, the majority of the expansion has been in its backyard of Central and Eastern Europe. This growth is mostly organic and concentrated on providing services to corporate clients. "We're not opening lots of branches in foreign markets. We are there to do business for corporate clients, although we are beginning to offer retail services in a few of these markets," says Gorkov. "We need to grow in these markets. We hope to become twice as big in every foreign market where we are present over the next four years."
Exposure to instability
Sberbank suffered along with everybody else in the turmoil that swept the world following the 2008 crisis, however it has the added headache of being exposed to many of the less-stable markets in CEE. "Belarus keeps going up and down. Hungry has been a very fruitful market for us. Slovenia has had a big crisis one year ago. And Croatia is not enjoying positive GDP growth. There is always something going on in this region," says Gorkov.
The biggest headache is, of course, Ukraine. Sberbank set up a Ukrainian business some six years ago that was very successful, but that has been punished recently in the showdown between the West and Moscow. "It's a very difficult situation, as lots of things are happening with no logic to them. In our worst-case scenario we never expected the situation in the country to come to what it is. Ukraine is a very important market for us, especially given the strong trade relations. It's not just about energy; we share a long culture and history with Ukraine. We launched [the Ukrainian branch] about six years ago and it's been very successful.
Sberbank actually managed to earn some profit in Ukraine in the first quarter of this year, but it wasn't very much. Gorkov says that the impact of the turmoil on the bank's balance sheet won't be seen until the second quarter this year. "I hope following the presidential elections things will become more stable," says Gorkov.
Despite Russia's obviously close relations with Ukraine, Sberbank is still chasing the other international banks operating there. Two domestic banks lead the market in terms of assets, followed by Austria's Raiffeisen Bank International in third place and Italy's UniCredit Group in fourth place. Sberbank trails in eighth place. Still, the crisis could play into Sberbank's hands: most of the other international banks have pulled in their horns or simply left the market. "We have less risk in the Ukrainian market than international banks," says Gorkov. "But all the banks have stopped lending and all the banks have lost deposits."
Perhaps Sberbank's most successful foreign investment to date has been the acquisition of a 99.85% stake in Turkey's Deniz bank in September 2012, a top-10 private bank with just shy of 600 branches. "Turkey is a very important market and it is growing better than the rest of Europe," says Gorkov.
It also took a big step buying Volksbank International (VBI) from its Austrian-based parent Volksbank AG. The acquisition of VBI brought a network of nine subsidiary banks in eight CEE countries: Slovakia, the Czech Republic, Hungary, Slovenia, Croatia, Bosnia-Herzegovina, Serbia and Ukraine.
Western banks were quick to move into these Emerging European markets in the early 1990s. However, there is still plenty of opportunity, especially for a Russian bank due to the growing amount of trade it enjoys with the other counries of the region. Poland is the one exception; Sberbank has no plans to open operations in Poland, which remains a rather insular market with complicated historical ties to Russia.
This new foreign focus has also affected the bank's domestic business. For example, in Tatarstan Sberbank has opened a special Turkish desk in the capital of Kazan. The predominantly Muslim state has built up its own relations with both the Muslim world, including Turkey, and attracted significant investment from those countries. Sberbank has responded by hiring Turkish speakers to offer special services to the incoming investors working in the autonomous Republic of Tatarstan.
Gorkov says that Sberbank has already mostly achieved the share of foreign business in Sberbank's total business that it was hoping for. At the end of 2013 international assets accounted for 12% of the bank's total assets, and 7% of total profits. Gorkov says the goal is to maintain the assets contributed from foreign business at around 10% of total and the share of the profits at 8%.
bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more
bne IntelliNews - The Council of the European Union (EU) has suspended for four months the asset ... more
Henry Kirby in London - Central and Eastern Europe and the Commonwealth of Independent States’ (CEE/CIS) countries performed particularly well in the World ... more